Consider This: a customer applies for a mortgage, and you're an underwriter pulling their account history. You see their FICO score but can't see their debit card behaviors or even their primary deposit account. You'll eventually be able to see it when gathering a report, as the data points exist, but they're stored in different datasets. You're left with an incomplete process at the will of your CORE and reconciliation process. Without a complete on-demand view of the customer's financial story, compliance teams utilize workarounds, and underwriters have partial profiles. And the customer? They wait longer for a decision. What's the real issue here? Data Siloes in Banking. Hidden behind tiered pricing through on-premise systems and buried in outdated reports, legacy architecture wasn't built for the complexities of modern banking.
Legacy Systems Explained
Most banks today still run on legacy systems and architecture. As a working system in the past, legacy architecture usually follows batch-based processing. On an on-premise system, these independent server systems work as follows:
- Transactions: Transactions from deposits, withdrawals, and transfers are recorded but not immediately posted to the account.
- Batch Processing: The queued transactional data processing is typically bulk uploaded after business hours. This stage of the transactions is usually when the account balances are updated and validated, and necessary reports are created.
- Reconciliation: After processing the data, the system reconciles the accounts, where the debits and credits are appropriately applied-- preparing for the next business day.
Financial Technology has grown extensively since banks opened their doors. Taking transactions in bulk and processing them after hours has worked for decades. But will they keep working for decades? Embedded finance and real-time data have become a requirement for all banks. This isn’t just a feature– it’s the future. Competing with larger institutions but lacking the ability to provide similar services leads to competitive disparity. Community banks have opted to sponsor fintech programs but still scrape around their fragmented CORE data to provide the data.
Data Siloes in Banking
With fragmented CORE data, reports and insights become delayed and disconnected. Every product banks release in this model—debit cards, credit cards, and lines of credit—has a dataset. Stored separately within the CORE or externally, the unintegrated product creates a separate stream of data that needs reconciliation to the originating account. Over time, these fragmented data streams lead to inefficiency as stakeholders don't have a complete picture of their customers, and reporting takes considerable time.
Unified bank data on modernized infrastructure will alleviate this process by bridging disconnected data. This vision utilizes cloud infrastructure and real-time data, which provide complete data for underwriters, better risk models, and more accurate compliance insights. With siloed data, you may know your customer's credit score, but what about transactional behavior that might lead to risk? You can have loan data, but are we considering account history? The result? Decisions are made without a complete customer profile.
Nothing is more affected by data siloes in banking than compliance and risk. With transaction processing overnight- and sometimes even longer, the lack of real-time data won't appear in a report for days. The batch-based processing of data lacks indicators that can trigger AML reports immediately. As our team member and expert on compliance and risk, Kyle Thorton, explains:
"You want to know everything about your customer—you just don't want it to take too much time. But when your systems are fragmented and batch-based, time is exactly what it costs you."
Without unified bank data, compliance reporting becomes a reactive process. Your team members invest more time reconciling the account than actually analyzing it. Risk models become subpar without access to real-time data. Kyle also mentions, "You become at the will of your CORE instead of controlling your data itself." Hidden behind tiered pricing with on-prem systems, banks don't fully control their data.
Banks are increasingly aware that being at the will of their CORE is no longer sustainable. Reporting directly from the CORE is no longer practical and can become expensive. Modern data infrastructures flip the narrative and put banks in absolute control of their data. Centralized, standardized, and secure data in one complete, verified data set removes data siloes in banking and makes generating reports and informed decisions second nature.
The Cloud Approach
We've noticed these issues with our current and previous clients frequently. Our Sutton Bank Case Study showcases our solution for migrating to cloud-based architecture. This case study shows the cost savings when migrating from on-prem systems, the on-demand querying capabilities, and the overall benefits of the cloud. We noticed the following:
- High Operational Costs: Maintenance for the on-prem system was extensive, especially considering hardware and storage.
- Limited Scalability: As fintech transactions increased, scaling for partnerships became inefficient.
- Delayed Compliance Monitoring: Batch-based processing causes delays in Anti-Money Laundering (AML) and compliance monitoring.
Sutton Bank approached us with a common challenge faced by mid-sized banking institutions. Their CORE data was stored in an on-premise system that was disconnected from other lines. They still received the needed data, but scaling became difficult. Together, we created a solution on cloud-based infrastructure, establishing real-time data, better querying for reporting, and significant cost savings.
Conclusion
Legacy systems have worked for decades, but they have inherently created data siloes with different streams of data. Hidden behind tiered pricing with on-prem systems, gathering the data into a customer profile becomes expensive and time-consuming. While deregulated as of late, the banking industry will always need to comply with regulations and compliance. The lack of real-time data to create immediate triggers for compliance reporting will be a growing concern if banks don't reconsider their infrastructure. The challenges faced in modern banking aren't vision and innovation. The real barrier lies in the outdated legacy architecture. Community banking customers expect the same services when competing against national banks as the primary banking institution.
iDENTIFY works with banks to unify their bank data on cloud-based infrastructure. By creating an additional layer of data on the cloud, we believe in enhancing bank data with modern financial technology rather than creating an entirely new system. Our solutions aim to improve overall data governance and put banks back in complete control of their data.
Are you browsing from the community? Or are you one of our esteemed clients? Follow our blog to see how we're shaping the fintech landscape.
